Cerberus selling stake in firearms maker after Newtown massacre

Rob Varnon

Published 7:14 pm, Tuesday, December 18, 2012

Some investors are looking to get out of the gun business after a massacre of school children in Newtown last week cast a shadow on the industry.

Shares in gunmakers including Southport-based Sturm Ruger and Smith and Wesson of Springfield, Mass., dropped precipitously on Tuesday following private equity firm Cerberus Capital's announcement that it would sell its stake in privately held Freedom Group, four days after a gunman armed with the company's Bushmaster rifle killed 20 children and 6 adults at Sandy Hook Elementary School.

Freedom Group, one of the biggest gunmakers in the country, also owns the Remington and Marlin brands.

"It is apparent that the Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level," Cerberus said in a posting on its website. "The debate essentially focuses on the balance between public safety and the scope of the Constitutional rights under the Second Amendment. As a firm, we are investors, not statesmen or policy makers. Our role is to make investments on behalf of our clients who are comprised of the pension plans of firemen, teachers, policemen and other municipal workers and unions, endowments, and other institutions and individuals. It is not our role to take positions or attempt to shape or influence the gun control policy debate."

New York-based Cerberus owns 95 percent of Freedom Group, a stake it has held since 2006, according to SEC filings.

After the news, shares in Ruger and Smith and Wesson continued fell for a second day. Ruger closed at $40.60, down 7.7 percent Tuesday and Smith and Wesson lost nearly 10 percent to close at $7.79.

Both companies have had record sales in recent years, which has been reflected in their stock prices. Four years ago, Ruger was trading at $6.90 while Smith and Wesson was trading at $2.38.

Freedom Group, Ruger and Smith and Wesson all reported strong sales this year. The Southport company had sales of $345.2 million through the first nine months of this year and Smith and Wesson reported a 48 percent increase in revenue for the most recently completed quarter.

Freedom said it had firearm sales of $403.5 million through the first nine months of this year.

Ruger, Freedom Group and privately held Colt in West Hartford did not reply to requests for interviews and an analyst that follows the publicly traded firms also declined a request for comment.

The gunmakers have profited as people purchased weapons in earnest amid fears that the Obama administration would seek to enact stricter gun-control laws.

That didn't happen during his first term, but the Newtown massacre has brought the issue to the forefront, and there will likely be a renewed push to restrict access to autoloading rifles, like the Bushmaster used in Sandy Hook.

The AR rifles are popular among hunters and target shooters. They are not automatic and require shooters to pull the trigger each time to fire a bullet from a clip.

Reports from across the country indicate gun shops are seeing heightened demand for the rifles as gun owners fear they will be outlawed.

That this tragedy happened in Connecticut is a somber irony, according to historian and cultural resource consultant Bill Hosley, principal of Enfield-based Terra Firma Northeast.

"This is our industry," he said of gunmaking. "It's part of our history."

Winchester, Colt and Remington are the iconic names in the industry and they were based in our biggest cities: New Haven, Hartford and Bridgeport. Colt started producing guns in Connecticut in 1847. Ruger is much younger and was founded in 1949.

He noted that Connecticut has one of the lowest per-capita rates of gun ownership in the nation, but has had one of the highest per-capita production of guns in history.

During World War II, gun making was a top 5 industry for the state.

"The whole industry is less than it was and all industry is less than it was (in Connecticut)," Hosley said.

Hosley doesn't expect Connecticut gunmakers to be put out of business, but stricter laws could reduce their sales to civilians.

While the gunmakers will face tough questions in the coming days and months over the weapons they make, Hosley said the manufacturers aren't the biggest issue this tragedy has brought to light.